Cash-on-Cash Return Calculator for Business Acquisitions
See the yearly return on the cash it takes to buy a business, after the loan is paid. When you buy a business with a loan, the return that matters is what the business pays you each year compared with the cash you put in. The DealWorthIQ cash-on-cash return calculator takes the purchase price, financing, revenue, cost of goods, and operating expenses, and shows your pre-tax cash flow, cash-on-cash return, and whether the business covers its debt.
Formulas behind the Cash-on-Cash Return Calculator
Net operating income: Revenue − cost of goods sold − operating expenses. Operating expenses include salaries, owner salary and perks, rent, utilities, insurance, marketing, and other costs.
Annual debt service: Monthly loan payment × 12. The loan is the purchase price minus your down payment, paid over the loan term at your interest rate.
Pre-tax cash flow: NOI − annual debt service. What the business produces for you after the loan is paid, before income taxes.
Cash-on-cash return: Pre-tax cash flow ÷ (down payment + closing costs + working capital). Working capital is the cash you leave in the business to run it after closing.
Debt service coverage ratio: NOI ÷ annual debt service. Lenders, including SBA lenders, generally want this at 1.25 or higher.
Frequently asked questions
How do you calculate cash-on-cash return on a business?
Take the business's net operating income, subtract the annual loan payments to get pre-tax cash flow, then divide by the cash you invested: your down payment, closing costs, and working capital.
Is this calculator for rental properties?
No. This calculator is built for business acquisitions, with revenue, cost of goods, and business operating expenses. For rental properties, use the BRRRR, cap rate, or multifamily calculators.
What is a good cash-on-cash return when buying a business?
Small business buyers often look for returns well above what a rental property would pay, because a business carries more operating risk. Compare the return with the risk and with the time you will spend running it.